M&A activity in the Americas slowed more extensively in Q3 than in previous quarters. What had previously been a decline in deal values spread to activity, the number of transactions coming down as dealmakers revise their calculus and steel themselves for less forgiving economic conditions. Comparing the most recent quarter’s pace of dealmaking with Q3 last year shows a big drop-off.

However, last year was a blue moon period of blistering activity that makes like-for-like comparisons challenging. Taking 2022 in isolation, successive quarterly drops can be seen as the year has progressed. This actually began more than a year ago on the value front, the peak being found in Q2 of last year and trending down ever since. Volume topped out more recently, in Q1 of this year, and has now set on a steady decline.

All eyes are on the Fed

All eyes are now on the Federal Reserve as it presses on with an aggressive monetary tightening regime. There is now a singular focus on inflation, which is proving to be more stubborn than hoped. Core inflation, which excludes volatile food and energy prices, has become the main point of focus and data released in October showed this continuing to rise, up 6.6% from a year prior.

If this does not come under control soon some expect the Fed to hike rates to as high as 5.5%. This is an eye-watering pace of rate change from near zero as recently as March. Inevitably this is impacting deal markets. Debt financing

is more expensive and harder to access and companies with high leverage ratios are being give a wide berth as investors balk at risk. This is having a noticeable impact on the very largest private equity deals. The equity bear market also means now is not the time to issue stock to finance M&A. Current conditions favor corporates with cash-heavy balance sheets, low debt and defensive, inflation-resistant business models. Meanwhile, private deals will be concentrated at the lower end of the market until further notice.

Published in association with Datasite, Deal Drivers Americas provides an in-depth review of M&A activity in 2022, as well as a look ahead to 2023.

The report is also available on datasite.com.